Thousands of Jobs and Billions in Wealth Wiped Out by Dodd-Frank Conflict Minerals Provision

by Hans Bader on July 27, 2011 · 4 comments

in Deregulate to Stimulate, Economy, Employment, International, Sanctimony, Trade

Thanks to the “conflict minerals” provisions of  the 2010 Dodd-Frank law, thousands of the world’s poorest people will lose their jobs. Why? Simply because they come from the same country as other people who live in war-torn regions of conflict where rebels have used proceeds from mineral sales to wage civil wars and harm civilians. The SEC is now mulling how to implement the requirement.

The conflict-minerals provisions will impose massive compliance costs on automakers and others, as Washington Legal Foundation, Carter Wood, and the National Association of Manufacturers have noted. NAM notes that it will harm the automakers and their suppliers, and estimates that it “will cost U.S. industry between $9-16 billion to implement.” “Dodd-Frank Section 1502 requires the SEC to devise rules requiring those companies which utilize ‘conflict minerals’ (tantalum, tungsten, gold, etc. from the Congo) to report the origin of those minerals annually.” These minerals are all fungible. So there’s little way you can tell whether the commodity comes from a war-torn part of a country, versus a peaceful part of a country, when you use it. So-called “conflict minerals” come from incredibly poor countries, like the Democratic Republic of the Congo, which has a per capita income of less than $300 a year, making it the second-poorest country in the world. Miners in these countries are in no position to “certify” their minerals as being conflict-free (poverty and judicial, legal, and governmental corruption might make any such “certification” suspect anyway), and companies have no practical way of knowing whether minerals came from war-torn parts of these countries. As Steve Jobs of Apple noted, “until someone invents a way to chemically trace minerals from the source mine, it’s a very difficult problem.”

The conflict-minerals provisions have already cost countless people their jobs in areas closer to armed conflict. In the Congo,

North Kivu Exporters Association President John Kanyoni says since the law went into force, the region has been reeling from what has become a de facto embargo on Congolese minerals.  Hundreds of thousands of people are now out of work and he says more unemployment will only fuel the conflict. “Their mission of fighting against the violation of human rights will be putting people in situation where they will be jobless.  And most probably those who will be jobless could join the armed groups,” he said. Kanyoni says the laws originated from Western companies under pressure from activists to prove their products were conflict-free.  But he adds there is also another dynamic at play, lower coast minerals from Congo compete with those mined in the United States, Canada and Australia.

As CEI’s John Berlau noted in comments filed with the SEC, conflict-minerals provisions could greatly harm even legitimate mining operations in conflict-torn regions. Moreover, as the fungibility of minerals, and the hefty penalties for violations, sinks in, these job losses will multiply and spread through even peaceful sections of the Congo and other countries that have regional insurgencies.

As Laura Seay, a professor of political science at Morehouse College, noted, “Because it is almost impossible to verify whether minerals sourced from the [Congo] or its neighbors are truly conflict-free, electronics companies now have a strong incentive to source minerals elsewhere, leaving Congolese miners unemployed.” As she points out, “While the advocates behind this provision claim to have never intended to create a boycott on Congolese minerals, their poor understanding of the near-impossibility of creating a reliable tracing scheme in a place where almost every public official can be bribed (not to mention that they don’t understand the real drivers of conflict) means that there is now in place a de facto boycott on minerals from the conflict zones.”

Tiffany & Company, one of the world’s largest jewelry companies, pushed the SEC to exempt gold from the disclosure requirements, arguing in a separate letter that the proposed disclosure rules “would violate the First Amendment.” Washington Legal Foundation makes a similar argument here, arguing that the the mandated disclosures constitute compelled speech forbidden by the First Amendment.

Other major provisions of Dodd-Frank violate the constitutional separation of powers, equal protection, and property rights.

Although its full name is the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” Dodd-Frank is a 2315-page laundry-list of special interest giveways that contains little real reform, and instead contains a vast array of payoffs and favors for special interest groups like trial lawyers. Civil rights commissioners and economists said it contains provisions that are racially discriminatory. Dodd-Frank  did nothing to reform the biggest bailout recipients, the government-sponsored mortgage giants Fannie Mae and Freddie Mac, even though administration officials like Treasury Secretary Geithner later admitted they were at the “core” of “what went wrong.” (Fannie and Freddie helped spawn the mortgage crisis by buying up risky sub-prime mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk. Now they are getting a bailout that may exceed $400 billion and has already reached $160 billion with no end in sight. Fannie Mae also helped pioneer the risky non-traditional mortgage loans that helped spawn the financial crisis.) John Berlau and I previously discussed other provisions of Dodd-Frank here and here.

Sasha Lezhnev July 28, 2011 at 10:03 am

This is very misleading. I recently returned from Congo, and I can tell you first-hand how the legislation has already impeded the ability of armed groups to profit from Congo’s mineral trade. A coalition of 40 Congolese human-rights groups called it “the leverage needed to instill and impose ethical business practices in the Great Lakes region.”

Since its passage, the bill has diminished the ability of the Congolese Army to illegally profit from the minerals trade. This has caused rebel groups to retreat from mining communities, while accelerating initiatives to trace and audit the region’s minerals.

It is now time for the SEC to follow up the legislation with timely regulations that do not allow for a phase-in period, which would negate the progress made to date. Thank you. For more information, see http://www.enoughproject.org

Lowly Lawyer July 28, 2011 at 4:38 pm

It’s a classic case of burning the house to roast the pig.

As Laura Seay, a professor of political science at Morehouse College, observed in the Christian Science Monitor, “because it is almost impossible to verify whether minerals sourced from the [Congo] or its neighbors are truly conflict-free, electronics companies now have a strong incentive to source minerals elsewhere, leaving Congolese miners unemployed.” As she noted, “While the advocates behind this provision claim to have never intended to create a boycott on Congolese minerals, their poor understanding of the near-impossibility of creating a reliable tracing scheme in a place where almost every public official can be bribed (not to mention that they don’t understand the real drivers of conflict) means that there is now in place a de facto boycott on minerals from the conflict zones.”

Kberg July 29, 2011 at 4:02 am

Although legislation has been successful, the free market and ethical purchasing power meant that folks would not buy products that have not been certified as zone-free, similar to fair trade certification, the government is not involved in whether a product is fair trade and the public can decide whether to buy extra based on that alone, again.

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